Thursday, November 02, 2006

A9 goes after advertising

Amazon's A9 appears to be refocusing on web advertising instead of web search. First, they simplified and scaled down their web search effort. Now, they are testing a new web advertising platform called Clickriver.

Clickriver appears to be AdWords for Amazon -- web ads placed on Amazon.com -- and a first step toward an AdSense competitor. From the Clickriver About page:

Clickriver Ads is an advertising program ... that allows businesses to place sponsored links on Amazon.com.

Clickriver Ads will appear on Amazon.com, on search results pages and on many product detail pages.

With Clickriver, a wide range of complementary products and services can be advertised at the precise moment that someone is interested -- as they shop, browse, and search on Amazon.com. For example, ads from banks can display on pages for finance and investment books, such as on the "Road to Wealth" product page. Ads from photo printing services can display next to search results for cameras and tripods. Ads for hotels, car rentals and travel agencies can display on pages for travel books, sunglasses, suitcases, portable DVD players and other travel accessories sold on Amazon.com.

Clickriver Ads was built by A9.com, a search technologies company based in Palo Alto, California. A9.com is a wholly owned subsidiary of Amazon.com.

7 comments:

Anonymous
said...

Amazon will fail at this search endeavor like Microsoft has failed at nearly all attempts of diversifying out of their core business (OS + Office).

I'm so tired of reading about how sooper-brilliant all these tech companies are. Sure, they're good at their core business, maybe even great, but they're not magical wonder-companies that can defy the laws of physics, time and economics on the way to total world domination. Amazon, despite all its sales, is barely profitable and has shown signs of extreme hubris in dealing with its partners (witness Jeff's attempt to redefine the word "exclusive" during the ToysRUs trial). Google is now buying companies to gain eyeballs or revenue or whatever. And outside of XBox and Expedia Microsoft hasn't had anything but massive losses in its non-core businesses.

You mentioned earlier that although google talks about how their work environment is so WICKED AWESOME, it had to admit (weeks later) their money making businesses weere suffering because of their lack of focus (created by the WICKED AWESOME environment).

Again, Microsoft, Amazon, Google, etc. are "good" companies. They've each done something fairly remarkable in their own business arena. But they're just businesses, and I don't yet good evidence of whether they'll be truly "great" in the long run (using the Jim Collins definition).

BTW, if someone asked me what the one thing was amazon could do to make their web site UI/user-experience worse, I would say "more ads"

If anything this just means shoppers are better off going to a comparison shopping site or single-purpose vendor, rather than amazon. Amazon is the worst of all worlds now (bad mixture of search engine, review site, marketplace and seller)

Clearly they've figured out that despite selling $10 billion/year in merchandise, they can only eke out about $100m in profit (that's around 1% profit margin, right?).

So instead it's "I know, we've got a lot of computers. They sit idle until the holiday season, Let's sell off space/time on them in-between." Reminds me of the mainframe era, actually.

This follows Nicholas Carr's "utility computing" argument. I guess, in general, it's an idea that might work in the long-run.

I'm just cynical enough, though, that I don't believe people are going to buy utility-level computing from a retailer they're essentially competing with. Add in the natural tension of amazon's internal retail business, big & small merchants, and this new "technology platform" and I don't see a recipe for success.

I predict a similar pattern for this new stuff that auctions followed (where it eventually just get folded back into the main site somehow). Or, A9 (basically abandoned).

I don't think it's true that Amazon's retail profit margin has to be stuck at 1%. Wal-mart does quite a bit better than that.

Amazon once talked quite a bit about trying to be the Wal-mart of the Web, but unfortunately never managed to nail its purchasing, supply chain, and distribution center operations to gain Wal-mart-like efficiencies.

It may be a failure of imagination on my part, I have a hard time seeing Amazon web services as a profitable venture. I understand the argument that Amazon needs to build a lot of this anyway for internal use, but I think there is a big difference between supporting and servicing internal customers and external customers. I suspect Amazon will find it very expensive to do everything that enterprise-level paying customers will expect of them.

In addition, I find myself confused trying to determine the target market for these web services. Most web services nowadays are free and targeted at hobbyists. Amazon is hoping to extract hundreds of millions from their web services, which means they would need thousands of enterprise level clients. Does this market exist? Other utility computing offerings do not seem to have tapped it, perhaps because substitutes (e.g. leasing servers) work as well or better for many purposes.

In the end, I am saddened to say that I think Amazon will see their web services fall in the same bucket as Alexa, A9, Junglee, Auctions, zShops, PlanetAll, and other expensive, failed attempts to stretch way beyond Amazon's retail core.

Whether it is from a no longer appropriate love of risk taking or just boredom at the top, Amazon never seems to learn the lesson that they should focus on doing one thing well.

Greg wrote: I don't think it's true that Amazon's retail profit margin has to be stuck at 1%. Wal-mart does quite a bit better than that.

I wasn't implying that it's impossible for a e-retailer to have better margins, but that amazon has found itself unable to attain those margins and maintain an revenue growth. This is another failure on their part, especially because "etailers" are supposed to have far lower cost structures than "bricks and mortar" stores. The fact that their margins are far worse than most successful traditional retailers is a significant failing.

Unlike WalMart, amazon doesn't seem to have enough depth of talent (as you pointed out) to stay on top for very long. I don't know about you, but I find lower prices most other places, better comparison shopping elsewhere, and even better reviews. Amazon is thus constantly in the business of sacrificing profits for maintaining revenue growth. That's fine for a couple of years, but they're entering their second decade and they show no signs of growing profits (instead they're trying to branch out into another line of business).

Greg also wrote: Whether it is from a no longer appropriate love of risk taking or just boredom at the top, Amazon never seems to learn the lesson that they should focus on doing one thing well.

On this you and I agree. I think it's really a result of hubris created by initial break-out success. The same kind that causes the Redfin CEO to say that working at Redfin will let you make "emotional connects that may elude you the rest of your life". The same kind that makes Steve Yegge (prematurely) declare that Google's work environment is (basically) perfect and bound for glory. I think these guys just let their initial success convince them they know something someone else doesn't (because they did once).

I also agree with your comment about not seeing how the amazon web services platform will ever evolve into something that non-micro-startups or hobbyists use. There's a free flickr alternative and some other ad-related micro-startups, but no one serious. Enterprises are far more likely to make a "pit stop" at blades, server virtualization, SAAS for CRM and traditional outsourced email, etc. before they move to actual full-on utility computing for things like enterprise storage and supply chain.

Shoot, wanted to add I agree with your comment about "just boredom at the top".

I saw this at RealNetworks. It's not really boredom, but a recognition that one's existing business model is "not long for this world" and so you replace the declining growth engine of your company with another growth engine.

Unfortunately in RNWK's case they've had to do that every year or two, never really settling on anything that works.